Gender Impact Assessment of Taxes and Benefits

1. Gender Impact Assessment of Taxes and Benefits Susan Himmelweit Open University Women’s Budget Group

2. Plan of presentation • Considerations in applying Gender Impact Assessment (GIA) to the revenue side of budgets • Analysis of particular taxes and benefits • Income tax • Child benefit • Some reflections on Iceland’s income tax and child benefit systems • Purpose of GIA

3. Framework • Gender Impact Assessment (GIA) must be applied to government budget as a whole: • Balance between (net) revenue and expenditure has the most significant gender impact • For example, UK government’s decision to reduce its deficit approx 80% through cuts in expenditure and 20% by raising taxes led to women losing far more than men: • Women pay less income tax and less in indirect taxes • Women benefit more from public services • These gender differences true in most, if not all, countries • Given balance between public expenditure and net revenue collection gender impact of particular taxes and transfer payments (benefits) can be assessed

4. Consider revenue and transfer payments together • GIA looks at whether policy reduces or increase existing gender inequalities • Such assessment therefore depends on what those existing inequalities are • Relevant existing gender inequalities for taxes and benefits are: • Earnings and other income inequalities • Differences in their household incomes • And differences in own/household needs that lead to unequal costs • Gender roles differences in time use • For any change in taxes and benefits, need to examine effects on these inequalities • And for some particular taxes or benefits impacts on additional specific gender inequalities • Both distributional and behavioural effects

5. Scope • Women’s lives more varied than men’s – need analysis that allows for this • Need a life course approach to consider effects on lifetime gender inequalities: • not just effects on current distributional and other inequalities • e.g. women's poverty in old age largely due to having spent less time in labour market due to caring responsibilities • tax changes that encourage more equal sharing of employment and domestic time will help reduce income inequality among pensioners in the long run

6. Level of analysis • Household level analysis is not enough, need to do what we can at individual level too: • Individuals within households do not have equal power over use of household resource or benefit equally from them • Within a household interests of individuals may not coincide even in short-run • People do not live in the same household for ever; • One or both of a couple will live in a subsequent household (more likely the woman if only one) • Need to think about impacts for them too • Nevertheless there are inter-household as well as intra-household gender impacts • Not only between male and female single adult households • But because women and men are differently distributed across different types of households e.g. women more likely to be lone parents

7. Income Tax • Since individual income inequalities between men and women are large and persistent, raising revenue through income tax is an effective gender equalising way to do so • All systems work through: • A tax free allowance, so that tax is paid on any income above that level • One or more higher threshold(s) above which successively higher rates of tax are paid • May have different systems (schedules) for income from different sources • Nevertheless income tax systems vary in their gender effects according to: • How far they are individual based • How progressive they are • Iceland has: • (not very) progressive individual taxation of earnings • joint taxation of income from capital at a lower single rate over a threshold (which for a couple is double the level for singles) • a tax free allowance that is transferable between spouse (income splitting too???)

8. Independent individually based taxation? • A purely individual based income tax system gives individuals their own marginal tax rates dependent on only their own income • Most significantly, for earnings: • makes a couple’s net earnings less unequal than their gross earnings • means one partner’s decisions about employment does not impinge on partner's take home pay • taxes a two earner family less than a single earner family with the same gross income • Single earner family has higher “full income” • compared with joint taxation encourages more equality in gender roles because gives lower earner a lower marginal tax rate • So independent taxation of earnings better for challenging intra-household inequalities in roles and incomes (and recognising contribution of domestic labour)

9. Sufficiently progressive? • Gender effects also depend on how progressive the income tax system is • The more progressive an income tax schedule is on earnings the more it reduces inequalities in: • net income compared with gross earnings • employment incentives between higher and lower earners • Such inequalities hold: • between men and women overall: • because of gender pay gap • and within households: • because of unequal gender roles with respect to employment caring responsibilities and employment • Between men and women overall, a more progressive income tax system reduces the effects of gender inequalities in earnings • Within households, the more progressive an individual based income tax system the more it reduces gender inequalities : • in net income • Potentially giving lower earners (largely women) more power within their households • in employment incentives • Challenging unequal breadwinner models and consequent gender roles within households

10. Inter-household inequalities • These have been growing due to increasing: • wage and earnings inequality • contribution of women's earnings to household incomes • and assortative mating so that husbands' and wives’ earnings highly correlated • Concern about poverty created by this has led to independent taxation being eroded by eg: • Joint mean testing of benefits and tax credits based on household income and costs: • eg UK’s tax credits, supplement to low income households, raises their incomes but creates employment disincentives • Transferable tax allowances • In Iceland but also proposed by Conservative party in UK who want to support traditional sole breadwinner families

11. Erosion of independent taxation • Augments income of lower income households but at the expense of reinforcing traditional gender roles by creating employment disincentives for second earners • particularly severe for those with caring responsibilities (often women) if they have to pay for substitute care • level of support for care, financial or through social services, is relevant here too • may mean employment does not pay • Long-term effects may be particularly serious, for those, usually women, who give up employment opportunities today for gain that is • to their family not necessarily themselves • short-term but involves future career disadvantages • and unreliable: • Many of today's second earners/ full time carers are tomorrow's lone parents • Cannot rely on a partner remaining in employment

12. Have to consider benefits too • Increasing tendency to have child and other benefits means tested (at household level) • Aim to target benefits more to those who need them • May therefore help with inter-household gender inequalities • But tends to worsen within household gender role inequalities • Produce disincentive effects to employment discussed earlier • However often stronger since withdrawal rates of benefits usually higher than marginal tax rates (not in Iceland for child benefit!) • Household level means testing makes effects on individuals more difficult to understand • Important for intra-household equality who actually receives benefits • This often not recorded in data • Benefits have more equalising effects if they are flat rate i.e. not means tested but paid for by progressive taxation: • Spreads cost and any employment disincentive over large population (not just those receiving that benefit) • Example of child benefit: • Since women more likely to live with children and receive child benefit - most single parents are women - particular gender effects for this • in UK used to be universal flat rate but since 1999 augmented by means tested child tax credit (with high withdrawal rate) and from 2012 child benefit is to be totally withdrawn from households with a higher rate taxpayer (high threshold) • Iceland child benefit subject to middling income thresholds dependent on number and age of children with low withdrawal rates above these • Benefits higher for single parents but thresholds for means testing are lower

13. Some gender based reflections on Iceland’s tax system • Even in Iceland and other Scandinavian countries there are still gender inequalities in gender roles, earnings and capital ownership (???): • though less than in many other countries and less than in the past • Iceland’s tax system has the gender equalising effects of individual taxation for dual earner couples • But transferable tax allowances undermine this for couples in which one partner is not in employment (especially if this is due to caring responsibilities) • raising the amount that a low earning person would pay in tax from entering employment (income splitting could make this even higher) • increasing intrahousehold inequality by giving the benefits of that allowance to her partner • but may lift such households out of poverty if that partner cannot work e.g. because of disability or exceptional caring responsibilities • Better for intra-household inequality to give her an allowance of her own if that is the aim? • Joint taxation of capital • Since only one rate the only significant feature is that couples get a joint tax-free allowance that is twice that of singles • Allows couples to be taxed as if capital was spread between more equally between them than it actually is • Better for intra-household inequality if capital had actually to be transferred, or jointly owned, to make full use of that joint allowance? • Child benefit • Such gentle means testing can’t do much harm to employment incentives, but still reduces incomes of parents (and hence of more women than men) relative to non-parents

14. Gender Impact Assessment of Taxes and Benefits • Allows one to calculate gender impact of proposals for changes in taxes and benefits • On distribution: • Within couple households • Between households of different types • On behaviour • We only looked at employment incentives but could be other behavioural impacts too • This is important if we want to reduce gender inequalities • Or if have other aims behind the proposed changes • And these aims depends on their behavioural impacts, which may be different for men and women • Want to be sure no inadvertent adverse gender impacts • May decide still want to go ahead with the policy, but want to mitigate any adverse gender equality effects